Policy Alert published by The Clingendael Institute, 21 April 2026.
In these times of major geopolitical turmoil, the question is not only how the EU responds in the short term but also how it prepares structurally for a more uncertain, unpredictable world.
Lacking the military might of other major powers, the EU has long relied on a different form of leverage: market size and regulation. This leverage has traditionally been justified based on norms and values, such as combating climate change and ‘making polluters pay’, rather than economic and strategic interests.
But in fact, regulation has helped the EU strengthen its security and geopolitical position. What is changing, therefore, is the function regulation is beginning to serve: as a key instrument in the EU’s geoeconomic toolbox. And emissions regulation now sits firmly at the heart of this toolbox.
Linking decarbonisation to market power
For decades, the EU’s global influence has rested – among other things – on the size of its internal market and the regulatory standards attached to it. Though sometimes criticised as overly prescriptive, the consistency and predictability of these rules have made the EU an attractive partner for trade cooperation with countries across the world.
This regulatory model is quickly evolving, underpinned by the challenges the Single Market is facing, as highlighted by Letta and Draghi, and the rapidly deteriorating security environment Europe finds itself in. While most attention has been paid to sanctions regimes and defensive tools like foreign investment screening and the EU anti-coercion instrument, emissions reduction and decarbonisation now also play a geoeconomic role.
"Postponing or diluting emissions regulation would merely slow down the ongoing energy transition, creating significantly more fiscal and political discomfort for the EU in the long run."
The EU’s Carbon Border Adjustment Mechanism (CBAM), which came into force earlier this year, is perhaps the most visible example. It imposes a fee on imported carbon-intensive goods (e.g., steel, fertilisers), equivalent to the price paid by EU companies under the Emissions Trading System (ETS). By ‘taxing’ energy intensive imports, the CBAM essentially acts as a market access condition to shield European industry from carbon leakage.
The EU Methane Regulation, adopted in 2024 with key provisions set to enter into force from 2027 onwards, adds another layer: it targets methane emissions embedded in imported fossil fuels, thereby requiring suppliers who want to continue selling gas, oil or coal to the EU to comply with its standards.
Together, these policies reflect a broader shift: though not intentionally designed as such, EU emissions regulation has increasingly come to function as a geoeconomic instrument due to its profound implications for trade and markets.
Key takeaways
- Emissions regulation as geoeconomic tool. Policies like ETS, CBAM and methane rules are shaping global market access and supply chains.
- Industry has intensified calls to dilute current regulations. The war in Iran has revived calls to delay, pause or weaken the EU's carbon market and methane emissions rules.
- Short-term pressures vs long-term resilience. Clear emissions regulation creates economic levers to reduce fossil fuel reliance and the costs associated with imported oil and gas.
- Consistency and credibility on emissions regulation pay. Doubling down on carbon and methane emissions regulation strengthens market transparency and investment certainty for domestic industry and international partners.
This text is based on extracts from a Policy Alert written by Hannah Lentschig (Clingendael Institute), Daniel Scholten (Clingendael Institute), Louise van Schaik and Timur Ghirotto (Clingendael Institute). To read the full piece, follow the link here.
Photo credit: Clingendael / AI-generated